Joe Hockey correct on Australia's debt, spending

Joe Hockey says Australia's debt and spending is among the fastest growing in the world. ABC Fact Check finds his claim is correct.

AAP: Daniel Munoz

As Joe Hockey prepares to deliver his first federal budget in May, the Treasurer has foreshadowed cuts to government spending to rein in Australia's debt.

As new governments often do, he's laying the blame squarely at the feet of his predecessors.

"Of the 17 top surveyed IMF countries, Labor left us with the fastest growth in spending of anyone in the world... and they left us with the third highest growth in debt of anyone in the top 17," Mr Hockey told RN Breakfast on March 6.

"So, the fact of the matter is they've left a whole lot of landmines in the budget. We need to carefully remove those landmines and put us back on a path that gets us away from $123 billion of deficit, and starts to pay down the logjam of $667 billion of debt."

The claim: Joe Hockey says Australia has the fastest growth in spending and third highest growth in debt among 17 countries surveyed by the International Monetary Fund.

The verdict: Mr Hockey's comments on growth in spending and debt compared check out, although he fails to mention the fact that Australia's overall debt as a proportion of GDP remains at comparatively low levels.

Mr Hockey's $667 billion debt figure comes from Treasury projections for 2023-24, which also appeared in last year's MYEFO.

Key terms: Deficit and debt

Deficit is the amount a government spends annually in excess of how much it takes in – usually in the form of tax.Think of it like this, if you earn $50,000 a year, but spend $55,000, your deficit is $5,000.

Debt is the total amount a government owes, and is made up of all borrowing, including borrowing to cover a deficit. Or put another way, after running a deficit of $5,000 a year for 10 years, your debt is $50,000 (plus interest!)

Dr Shane Oliver, chief economist at AMP capital, says it's worth noting the growth in net public debt figures in MYEFO "contained more pessimistic assumptions than the previous government likely would have adopted".

Dr Oliver also says after the biggest boom in Australia's history, public finances should be in better shape. "The projected growth rate of spending going forward is unsustainably strong," he said.

He says the Government is right to focus on cutting the deficit and eventually debt.

International comparisons

Asked for the source of his claim about Australia's comparative spending and debt growth, Mr Hockey's office cited two graphs in a February 2014 "staff report" from the International Monetary Fund (IMF).

The first graph, titled 'Change in Real Expenditure', supports Mr Hockey's claim that Australia's spending rate is the highest among the 17 nations surveyed. Those countries include Denmark, The Netherlands, Belgium, Japan, France, The Czech Republic, Germany, Austria, Iceland, New Zealand, Finland, Sweden, Switzerland, Canada, USA, South Korea and Australia.

The IMF report notes that Australia's spending was "somewhat higher than anticipated".

The second IMF graph, titled 'Change in Net Debt', is the basis of the Treasurer's other claim - that growth in Australia's net debt is the third highest among the 17 nations surveyed. On this point, he's also correct.

However, the Treasurer did not mention the next graph in the IMF report, which shows where Australia sits in terms of general government net debt.

This graph paints a very different picture. Unlike the first two, which show the rate of change, this graph shows where Australia's current debt of $300 billion sits internatioanlly as a proportion of GDP.

On that measure, Australia's general government debt, including state governments, remains at comparatively low levels internationally.

Saul Eslake, chief economist at Bank of America Merrill Lynch, says Mr Hockey's comments "represent only a partial summary of what the IMF actually says in this section of it its report". He says Mr Hockey omits one important conclusion, "namely that Australia would still have the second-lowest general government net debt as a per cent of GDP among the countries shown by 2018".

In its generally upbeat assessment of Australia's economic position, the IMF says "gross debt is expected to peak at around 32 percent of GDP in 2015 and is among the lowest in advanced nations".

Elsewhere, in the fund's recommendations for Australia's fiscal policy, it says "Australia's modest public debt gives the authorities scope to delay their planned return to surpluses in the event of a sharp deterioration in the economic outlook".

The verdict

Mr Hockey's claims about Australia's forecast levels of debt and deficits may be "pessimistic", but they are consistent with Treasury modelling.

His comments on growth in spending and debt compared to the 17 nations surveyed by the IMF check out.

He fails to mention the fact that Australia's overall debt as a proportion of GDP remains at comparatively low levels internationally.